- Pound (GBP) drops as COVID cases rise 52% in 7 days
- Government plans more COVID brakes
- Euro (EUR) rises despite rising Omicron infections
- The ECB was the most accommodating central bank
The euro pound exchange rate (GBP / EUR) was down early in the week, matching last week’s gains. The pair gained 0.4% over the previous week, settling at + 0.41% on Friday at € 1.1775 after rising to € 1.1832 earlier in the week. At 05:45 UTC, the GBP / EUR is trading -0.25% at 1.1746 €.
The pound gained over the previous week after the Bank of England raised interest rates for the first time since the start of the pandemic. The UK central bank raised interest rates to 0.25%, from a historic low of 0.1%.
The central bank’s move came as inflation hit a 10-year high of 5.2% year-on-year in November. The BoE now expects inflation to peak at 6% in April 2022. Data from last week also showed that the UK labor market remains strong even as the government holiday program ends and consumers continued to spend to keep retail sales high.
Retail sales rose 1.4% in November month-on-month, well ahead of the 0.8% forecast.
Today, the pound is dropping as COVID cases increase in Britain. Britain recorded more than 82,886 new infections daily in the past 24 hours, up 52% from the previous week. The government is considering further COVID restrictions before Christmas.
The UK economy was already slowing as the last quarter of the year approached. Omicron’s hit on the economy is likely to mean the economy has slowed down even more.
The euro fell late last week after business morale fell in German for a sixth consecutive month and to its lowest level since February.
New COVID restrictions to curb the fourth wave of COVID have shaken confidence in the service sector as supply chain issues hurt the manufacturing sector.
While the ECB was more accommodating than the BoE last week, the euro has remained resilient, suggesting investors may be supporting the ECB’s more cautious approach.
No high impact euro area data is expected today. Omicron’s headlines are likely the source of the pair’s movement. GFK data on German consumer confidence is expected to be released on Tuesday.